Correlation Between Merck KGaA and Entourage Health

Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Entourage Health at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Merck KGaA and Entourage Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck KGaA ADR and Entourage Health Corp, you can compare the effects of market volatilities on Merck KGaA and Entourage Health and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Merck KGaA with a short position of Entourage Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Entourage Health.

Diversification Opportunities for Merck KGaA and Entourage Health

0.33

Correlation Coefficient

Merck KGaA  Entourage Health

Weak diversification

The 3 months correlation between Merck and Entourage is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Entourage Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entourage Health Corp and Merck KGaA is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Merck KGaA ADR are associated (or correlated) with Entourage Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entourage Health Corp has no effect on the direction of Merck KGaA i.e., Merck KGaA and Entourage Health go up and down completely randomly.

Pair Corralation between Merck KGaA and Entourage Health

Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Entourage Health. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 9.36 times less risky than Entourage Health. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Entourage Health Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  0.45  in Entourage Health Corp on December 2, 2024 and sell it today you would lose (0.15) from holding Entourage Health Corp or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.56%
Values	Daily Returns

Merck KGaA ADR  vs.  Entourage Health Corp

Merck KGaA ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck KGaA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Merck KGaA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Entourage Health Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Entourage Health Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Merck KGaA and Entourage Health

The main advantage of trading using opposite Merck KGaA and Entourage Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Entourage Health can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Entourage Health will offset losses from the drop in Entourage Health's long position.

The idea behind Merck KGaA ADR and Entourage Health Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.